in the united states district court for the ......2009/06/05 · dean graziosi, et al., defendants....

IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF COLORADO

Civil Action No. 09-cv-01025-RPM

VIDEO PROFESSOR, INC., a Colorado corporation,

Plaintiff,

v.

DEAN GRAZIOSI, et al.,

Defendants._____________________________________________________________________________

MEMORANDUM OF LAW IN SUPPORT OFMOTION FOR PRELIMINARY INJUNCTION

_____________________________________________________________________________

Plaintiff Video Professor, Inc. (!VPI"), through its attorneys, Fairfield and Woods, P.C.,

hereby submits its Memorandum of Law in Support of its contemporaneously-filed Motion for

Preliminary Injunction (!Motion"), and states:

INTRODUCTION

On May 5, 2009, VPI filed a Complaint to remedy acts of, inter alia: attempted extortion

through a racketeering enterprise under the Racketeer Influenced and Corrupt Organizations Act

(!RICO") and the Colorado Organized Crime Control Act (!COCCA") predicated on

Defendants# acts of extortion under both state and federal law, theft and criminal impersonation;

constructive fraud; deceptive trade practices under the Colorado Consumer Protection Act

(!CCPA"); unfair competition; tortious interference with business opportunities; business

disparagement; and libel per se.

Case 1:09-cv-01025-RPM Document 20 Filed 06/05/2009 USDC Colorado of 30

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VPI seeks a preliminary injunction to prevent Defendants from continuing to utilize the

vehicle of their extortion and racketeering enterprise$the Infomercialscams.com website$and,

thereby, to prevent further extortionate activities by the Defendants. In the Action, VPI also

seeks compensatory, punitive, statutory and treble damages, an accounting, the imposition of a

constructive trust upon Defendants# illegal profits, and its costs and attorney#s fees.

STATEMENT OF FACTS

A. The Parties

Plaintiff VPI is a Colorado corporation headquartered in Lakewood, Colorado, which,

over the past twenty years, has established itself as the world-wide leader of developing and

marketing computer learning products. A significant portion of its marketing and the sales of its

products occurs through its Internet website. VPI has used the name !Video Professor" in the

promotion of its business since at least 1987, and has invested millions of dollars to create the

goodwill, international recognition and reputation for quality products enjoyed by VPI. VPI

holds registered trademarks for the words !Video Professor," which are an essential and

invaluable element of VPI#s goodwill, business assets and intellectual property. VPI has a long-

established presence as an Internet retailer. VPI uses, among others, the domain name

!videoprofessor.com" as a link to its website. VPI#s website advertising and sales are a large

and expanding portion of its business.

Defendant Infomercial Consumer Awareness, Inc. (!ICA") is a Nevada corporation and,

upon information and belief, has an ownership interest in, and does business as,

Infomercialscams.com (!Infomercialscams"). Defendant Dean Graziosi (!Graziosi") is an

Arizona resident, is a principal and has an ownership interest in ICA. Defendant Ryan Patten


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a/k/a Ryan Jackson is an Arizona resident, an associate and partner of Graziosi in, and primary

spokesman for, ICA. Defendant Justin Leonard (!Leonard") is an Arizona resident and is the

founder and owner of Defendant Leonard Fitness, Inc. (!Leonard Fitness"). Both he and

Leonard Fitness are associated with Graziosi, Patten, and ICA, and do business as

Infomercialscams. Defendants John Does one through 10 are persons associated with

Infomercialscams whose names and addresses of residences are unknown.

B. The Wrongful Conduct

i. The Infomercialscams website

VPI has been aware of and has monitored the Infomercialscams website

(www.infomercialscams.com.) for several years. The Infomercialscams site was founded and

operated by Leonard through Leonard Fitness. Leonard remains active and involved in the

Infomercialscams website, as well as the !Consumer Protection Program," described infra. The

Infomercialscams website is a website where persons may anonymously post complaints

regarding companies that advertise their products through television infomercials (!Infomercial

Companies") and which was created to provide impartial advice for consumers. VPI is one of

the Infomercial Companies with a webpage on the Infomercialscams site devoted to !bashing" it.

As a practical matter, based upon the protections afforded anonymous speech under the

First Amendment to the United States Constitution, individuals who post complaints against VPI

are able to !bash" the company with total anonymity and without regard or concern for the truth

of postings# content or for potential liability for defamation. See, e.g., McIntyre v. Ohio

Elections Comm!n, 514 U.S. 334, 341-43 (1995) (discussing tradition of protection afforded

anonymous speech under First Amendment). With regard to the VPI postings on


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Infomercialscams, VPI has long believed that the vast majority are false and libelous. However,

in addition to the protections afforded anonymous speech for the anonymous posters of the

defamatory statements, website operators have traditionally relied upon the Communications

Decency Act, 47 U.S.C. § 230 (!CDA"), which provides immunity to certain webpage operators

from liability for the libelous content of third-party content providers. This CDA immunity, and

its inapplicability to the Defendants, is discussed further infra.

ii. Google search engine

Potential VPI customers typically locate VPI#s website to review and purchase its

products by using the Internet#s most popular search engine, Google. By !googling" the name

!Video Professor," the user is presented with search results, which at the top of the search results

page lists a link to VPI#s home page. See Exhibit A (screenshot of Google search results for

!video professor" dated May 16, 2009). The order or ranking of the Google search results is a

function of various search criteria used by Google, including important criterion related to

metadata and metatags, which are text buried in a website#s source code invisible to the public

that are read and later used by search engines to classify the website and to rank its relevance in

response to a given Internet search query.

A website owner can manipulate search results by imbedding metatags and metadata in

their source code, termed !search engine optimization," to push their website higher in the

Google search results with respect to a search for certain search terms. While the use of generic

metadata by website owners is entirely lawful, the use of trademarked metadata by persons other

than the owner or licensee of such trademark constitutes illegal trademark infringement. See

Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1239 (10th Cir. 2006). Upon information and


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belief, Defendants have not only improperly !optimized" the Infomercialscams website using

VPI#s trademarks, but have also re-written some or all of the consumer postings on the

Infomercialscams website to further optimize their search engine rankings.

VPI#s prospective customers searching for VPI on Google, and being presented with the

Infomercialscams website in one of the top five search result positions, would have reservations

about purchasing its products, especially if they navigate to the Infomercialscams website and

are confronted with the defamatory postings therein. As a result of the improper use of VPI#s

trademarks in metadata and metatags (optimizing the Infomercialscams site for the search results

for VPI), VPI has lost significant goodwill, has suffered the diminution of its reputation and has

lost sales.

Even more objectionable is Defendants# inclusion of advertisements by and for directly-

competing products and companies interspersed within the !rants" about VPI. In fact,

Defendants actually rank the competing products by a number of !stars," and provide either an

endorsement and/or a recommendation, or a criticism about the company or the product (the

!Five Star Program"). Exhibit B (screenshot of using eBay software review page dated May 16,

2009). Although the Defendants purport to offer advice and endorsements based on !extensive

research" and out of benevolent concern for consumers; in reality, Defendants receive a

kickback/commission from companies they endorse which are in direct competition with VPI.

By combining the libelous postings with their advertisement of directly-competing

products and companies, the Defendants are engaging in deceptive trade practices, as well as

product disparagement (the !Smear Ad Campaign"), all to their significant financial gain. This


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issue is discussed further infra. The Defendants were at all times aware of the deleterious effects

of the Infomercialscams website on the reputation, goodwill and sales of VPI.

iii. The extortionate !Consumer Protection Program"

As noted above, given the high ranking of the Infomercialscams website in the search

results of a Google search for !video professor"$driven up by improperly using VPI#s

trademarks in metatags and metadata and manipulating the contents of postings$it is highly

likely that any person searching for !Video Professor" on Google would be exposed to the

Infomercialscams# link to its webpage of !Video Professor Complaints." Defendants#

manipulation of the site through the improper use of the metadata and metatags is done

intentionally in order to create extreme economic leverage over VPI to Defendants# ultimate

considerable economic advantage, on which they have recently attempted to capitalize through

the introduction of their extortionate !Consumer Protection Program" (!CPP").

The home page of Infomercialscams now contains, as its lead article, the following

highly conspicuous message:

Latest News

InfomercialScams.com Launches Consumer Protection Program

To help consumers get quality products and services, and companies improve customer satisfaction and client relations InfomercialScam.com has launched the Consumer Protection Program (CPP).

If your company is listed on InfomercialScams.com and you would like help improving client satisfaction, which will improve your overall image, fill out the CPP application form

See Exhibit C (Emphasis in original). By !clicking" on the !CPP application form" link in the

above article, one is taken to a page stating:


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Feel like you or your companies [sic] misrepresented on Infomercial Scams? Have you improved parts of your company? Are there reviews you don't think are from real clients? Want the chance to defend yourself?

Fill out the form below to see if you qualify for our Consumer Protection Program (CPP). Once you have submitted all the information we will review it thoroughly so we have a better understanding of your company. All answers will be kept strictly confidential and will only be used for internal CPP use. We will contact you within 48 hours of the form submission.

See Exhibit D (Emphasis in original).

VPI was interested in learning more about the CPP and, in March 2009, VPI completed

and submitted the !application form" electronically. Shortly thereafter, VPI received a telephone

call from an individual identifying himself as Ryan Jackson, who stated he was a !partner" of

!Doug Smith" in the Infomercialscams# CPP.

a. The basic CPP Option

Mr. Jackson set out how the CPP scheme operated. He stated that if a company

!qualifies" for the program, Infomercialscams announces that fact on its site and makes very

favorable comments about the company and how it wants to work with its customers to insure

complete customer satisfaction. Mr. Jackson stated that !qualification" for the program

consisted of making the requisite payments associated with membership in the program. Very

early on in the conversation, VPI became suspicious that the CPP was in fact a blatant means to

extort money from Infomercial Companies by offering them the only possible means to remove

the defamatory and negative anonymous postings on the Infomercialscams website, which

postings negatively impact their reputations, goodwill and sales.

Mr. Jackson stated that the goal of the CPP was to !clean-up" a company#s public image.

Mr. Jackson stated that once the funds were paid, with respect to existing consumer postings,


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those consumers would be emailed by Infomercialscams and given an email address at VPI to

contact to rectify the consumer#s complaint. Once the consumer was notified by

Infomercialscams, Infomercialscams would assume that after a short period of time$

approximately ten (10) days$the complaint would have been resolved and Infomercialscams

would remove the posting.

Similarly, with respect to negative postings made after VPI joined the CPP (i.e., paid the

money), immediately upon the receipt of a negative posting, Infomercialscams would send the

consumer the email directing them to contact VPI. Following a period of approximately ten (10)

days, Infomercialscams would assume the complaint had been resolved and the public would

never see the posting. Instead of being posted on the Infomercialscams public page, the new

negative posts would be held in a !holding" page between the time it was received and the time

it was deleted, and would not be accessible to the public.

Mr. Jackson was clear that as long as VPI kept making its monthly payments, none of the

negative postings would be visible to the public. When asked about the cost of membership in

the CPP, Mr. Jackson stated that it would require an initial payment of $157,500.00, followed by

monthly payments of $23,750.00. See Exhibit E, at p. 3, ¶¶ 4, 5, which is a true and correct copy

of the agreement provided to VPI by Mr. Jackson. Mr. Jackson further provided that the

monthly payments would have to be made for a five (5) year period. In sum, in exchange for

payments of money over five years, Infomercialscams would remove defamatory postings about

VPI from its site, block future negative posts about VPI, and actually tout VPI!s virtues"all

after many years of vehemently bashing VPI.


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If VPI had succumbed to the extortionate pressure and accepted this !option" under the

CPP, Infomercialscams would have extorted approximately $1.5 million dollars from VPI over

the five-year period. Following some price negotiation, the membership fee in the CPP for VPI

was reduced to a $100,000.00 up-front payment, and monthly payments of $10,000.00 thereafter.

b. The !Delisting Option"

At some point, VPI asked what it would cost to simply remove the entire Video Professor

webpage from the Infomercialscams site so that all the current postings would disappear, and

there could be no new defamatory postings. Mr. Jackson referred to this as Infomercialscams#

!Delisting Option," and said that option would cost more. He later informed VPI that the price

for delisting would be $400,000.00 up-front, and $10,000.00 per month for five (5) years. If VPI

had given in to the extortionate pressure and accepted the !Delisting Option," Infomercialscams

would have extorted $1 million dollars from VPI over a five-year period.

iv. !Doug Smith"

During VPI#s conversations with Mr. Jackson, VPI asked who owned Infomercialscams.

Mr. Jackson replied saying !Doug Smith," and that he was Doug Smith#s partner. In a

subsequent telephone call with Mr. Jackson, and in an effort to determine more information

about the scheme, VPI said it would like to talk to another company that had already signed on

to the CPP. Mr. Jackson called back with Defendant Graziosi on the telephone line with him.

Graziosi is a well-known person in the infomercial business, with his book entitled !Profit from

Real Estate Right Now" infomercials. Graziosi made exceptionally favorable comments about

the CPP. He also provided that after joining the CPP, his book infomercials, which previously


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had been bashed by consumers, had recently been awarded Infomercialscams# five-star rating

under the Five Star Program.

Upon information and belief, while !Doug Smith," is represented to be the sole owner of

ICA, the address and telephone number used for !Doug Smith" is in reality the address and

phone number of Graziosi. Upon information and belief, Doug Smith, the purported owner of

ICA, is a fictitious individual, and the real owner is Graziosi. VPI has also learned that !Ryan

Jackson" is also a fictitious name for Ryan Patten, who lives in a home and drives a vehicle

owned by Graziosi. The investigation into the CPP was made especially difficult due to the use

of these fictitious names and untraceable, pre-paid disposable cells phones, used by at least two

of the Defendants.

VPI has also learned that in addition to Graziosi#s purported membership in the CPP, at

least one other Infomercial Company, Direct Buy, has !signed-up" for the program by paying the

Defendants# extortionate demands. Immediately following Direct Buy#s membership in the

CPP, all negative postings about Direct Buy disappeared from the Infomercialscams website and

were replaced with glowing testimonials. Further, at least one other company has inquired into

participation in the CPP. In that case, the company was quoted an initial payment of

$500,000.00, and $25,000.00 a month thereafter for the !Delisting Option." The cost to that

victim over a five-year period would be $2 million dollars.

v. Infomercialscams is the scam

During the conversations, Mr. Jackson explained to VPI that even without the CPP,

Infomercialscams is a revenue-generating site. Mr. Jackson explained that the VPI complaint

webpage alone on the Infomercialscams website receives 20,000 !hits" or visits per month from


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people conducting a search for VPI, and, observing and clicking on the Infomercialscams link in

the search results, the individuals navigate to the site bashing VPI, which generates a !hit."

When the person arrives at the Infomercialscams webpage for VPI complaints, he is

presented with linked ads to the websites of numerous companies, some of which are direct

competitors of VPI. Each of the competitors is rated under the Five Star Program. Mr. Jackson

explained that Infomercialscams receives a !bounty" for each of the 20,000 hits that

Infomercialscams converts to a sale for any one of these directly-competing companies. Upon

information and belief, the highest five-star ratings are given to the company paying

Infomercialscams the greatest bounty or kickback/commission with little to no consideration

given to the quality of its products. Mr. Jackson indicated that Infomercialscams is already

generating $21,000.00 per month in revenue from the redirection of potential VPI customers to

VPI#s competitors# websites.

Even more troubling, Infomercialscams tells the public that !protecting you is not

cheap," and actually requests donations to its !Legal Defense Fund." The public is told that

Infomercialscams# aim is !helping consumers like yourself." See Exhibit F. Consumers who

visit the Infomercialscams site believe it to have only the consumers# best interests in mind.

Nowhere on the site are they advised that the site is a revenue-generating business making

millions of dollars off the postings of the unsuspecting consumers by recommending products

based on secret kickbacks and extorting money from infomercial companies in exchange for

removing the consumers# posts from the site. The injuries inflicted by the Infomercialscams

website scheme are patent and are attended by circumstances of fraud, malice, and willful and

wanton conduct.


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ARGUMENT

VPI has Met the Standard for Entry of a Preliminary Injunction.

A preliminary injunction should enter when a party establishes the following: !(1) the

movant will suffer irreparable harm unless the injunction issues; (2) there is a substantial

likelihood the movant ultimately will prevail on the merits; (3) the threatened injury to the

movant outweighs any harm the proposed injunction may cause the opposing party; and (4) the

injunction would not be contrary to the public interest." American Civil Liberties Union v.

Johnson, 194 F.3d 1149, 1155 (10th Cir. 1999). A party seeking an injunction under the COCCA

need not establish the irreparable harm element. C.R.S. § 18-17-106(6); see also Nat!l Union

Fire Ins. Co. v. Kozeny, 115 F. Supp. 2d 1210, 1230 (D. Colo. 2000). Each element is discussed

seriatim infra.

A. VPI is suffering irreparable harm.

Although not necessary for injunctive relief under COCCA, as more fully set forth in the

Complaint (which is incorporated herein by this reference), the Defendants are engaged in an

industry-specific conspiracy and scheme to: (1) drive the Infomercialscams website to the top of

the Google search results for VPI by, inter alia, improperly using protected trademarks, metadata

and metatags, and altering or fabricating alleged third-party anonymous postings to the website,

see Exhibit A (screenshot of Google search results for !video professor" dated May 16, 2009);

(2) expose those prospective VPI customers to libelous postings about VPI; (3) divert prospective

VPI customers for Defendants# profit; and (4) direct those potential customers to VPI#s

competitors# websites in exchange for a kickback/commission through supposed impartial

personal endorsements of directly-competing products. The Defendants in fact obtain a


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kickback/commission from VPI#s direct competitors, based upon the number of hits by potential

VPI customers diverted away from navigating to VPI#s website and, instead, directed to VPI#s

competitors# websites through the Infomercialscams website.

By ranking VPI#s competitors from one to five !stars," which, based upon information

and belief, appears in the order of the amount of the kickback/commission received from the

Defendants# affiliated companies, Infomercialscams and its associates have applied an enormous

degree of pressure upon VPI by essentially stealing away VPI#s customers for their financial

gain. Moreover, irreparable harm to VPI#s goodwill, intellectual property, reputation and future

business prospects has occurred, and continues to occur on a daily basis, as a direct and

proximate result of Defendants# improper acts and schemes.

The system is also a deceptive trade practice because consumers would naturally believe

the number of !stars" given a competitor$Infomercialscams.com#s affirmative endorsement of a

directly competing product$is related to the quality of the product and company. See Exhibit B

(screenshots of the !eBay" portion of the Infomercialscams website dated May 16, 2009). The

users of the Infomercialscams website are not informed of the Defendants# significant financial

interest in endorsing VPI#s competing products on their website. See generally, id. Put plainly,

through their juxtaposition of the libelous anonymous third-party postings, along with

advertisements from and advertisement of directly-competing companies, as well as their

endorsement of those competing products with its Five Star Program and related monetary

kickbacks/commissions, the Defendants are engaging in a deceptive advertisement campaign

founded almost exclusively on improper product disparagement, i.e., the Smear Ad Campaign.


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Defendants have attempted recently to further capitalize on the above-described pressure

point by seeking to extort significant amounts of money from VPI (and other members of the

infomercial industry) by offering to remove the libelous postings, remove the links to VPI#s

competitors# websites, block future negative posts about VPI, and actually tout VPI#s virtues$all

for a price. This latest extortionate scheme is ironically termed by Defendants the !Consumer

Protection Program." See Exhibit C (screenshots of the CPP dated April 28, 2009, also attached

to the Complaint as Exhibit B); Exhibit D (screenshot of promotional advertisement for CPP and

application entries dated April 28, 2009, also attached to the Complaint as Exhibit C); Exhibit E

(details of CPP including pricing structure, also attached to the Complaint as Exhibit D). This

pattern of malfeasance, including the Smear Ad Campaign and the extortionate CPP, has and will

continue to cause damage to VPI#s goodwill, reputation and value of its intellectual property

rights$which harms are difficult to calculate and which cannot be adequately recompensed

monetarily.

B. VPI will prevail on the merits.

As noted supra, VPI has brought claims against the Defendants under RICO and COCCA,

the Lanham Act, and for constructive fraud, deceptive trade practices under the CCPA, unfair

competition, tortious interference with business opportunities, business disparagement, and libel

per se. For purposes of this Motion, VPI will discuss only the statutory claims, as well as the

libel per se claim.

i. RICO

Section 1962 of RICO provides, in relevant part:

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign


15

commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise#s affairs through a pattern of racketeering activity . . . .

(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.

18 U.S.C. § 1962. A !%pattern of racketeering activity# requires at least two acts of !racketeering

activity." 18 U.S.C. § 1961(5). !Racketeering activity" is defined at Section 1961(1) of RICO

as !(B) any act which is indictable under any of the following provisions of title 18, United

States Code: . . . section 1951 [The Hobbs Act] (relating to interference with commerce, robbery,

or extortion) . . . ." 18 U.S.C. § 1961(1)(B).

!Enterprise" is defined under RICO as !any individual, partnership, corporation,

association, or other legal entity, and any union or group of individuals associated in fact

although not a legal entity[.]" 18 U.S.C. § 1961(4). The enterprise alleged in this case is !a

group of individuals associated in fact although not a legal entity," which group consists of Doug

Smith, Dean Gratziosi, Ryan Patten and Justin Leonard.

The racketeering activity alleged in this case includes Defendants# violation of the federal

Hobbs Act. The Hobbs Act, 18 U.S.C. §§ 1951, et seq., provides, in relevant part:

Whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion or attempts or conspires so to do, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section shall be fined under this title or imprisoned not more than twenty years, or both.

18 U.S.C. § 1951(a). !Extortion" is defined under the Hobbs Act as !the obtaining of property

from another, with his consent, induced by wrongful use of actual or threatened force, violence, or

fear, or under color of official right." 18 U.S.C. § 1951(b)(2). Where the offender has no lawful

claim to the money or property being demanded, threat of financial harm and the obstruction of


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free business choice through economic duress can establish a Hobbs Act violation. See, e.g.,

Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 523-24 (3rd Cir. 1998); see also

U.S. v. Vigil, 478 F. Supp. 2d 1285, 1297-98 (D. N.M. 2007). Threats to reputation can also

constitute extortion. See, e.g., 18 U.S.C. § 891(7) (defining !extortionate means" as, among other

things, express or implicit threats of use of violence or other criminal means to cause harm to

reputation); C.R.S. § 18-3-207(1)(a) (same).

Accordingly, to prevail on a claim under RICO, VPI must establish that: (1) the

Defendants engaged in two or more acts of extortion (as defined under the Hobbs Act); (2) as part

of an enterprise (as defined under RICO); and (3) which affected interstate or foreign commerce.

See 18 U.S.C. § 1962(c); see also 18 U.S.C. § 1951(a), (b)(2). Stated otherwise,

To successfully state a RICO claim, a plaintiff must allege four elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." The second RICO element, an enterprise, !includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." Despite the apparent breadth of this definition, to properly plead an enterprise a plaintiff must allege three components: (1) that there is !an ongoing organization with a decision-making framework or mechanism for controlling the group," (2) !that various associates function as a continuing unit," and (3) !that the enterprise exists separate and apart from the pattern of racketeering activity.

Kearney v. Dimanna, 195 Fed. Appx. 717, 720 (10th Cir. 2006) (unpublished opinion) (internal quotations retained, internal citations omitted).

The Infomercialscams website (and its libelous postings and manipulation thereof to

advance the Smear Ad Campaign and improper misdirection of potential VPI customers to

competitors# sites in exchange for a kickback) is the vehicle which has allowed the Defendants to

apply significant extortionate pressure upon VPI and other infomercial companies, which

conduct constitutes extortion and racketeering. See, e.g., Hy Cite Corp. v.


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Badbusinessbureau.com, L.L.C., 418 F. Supp. 2d 1142, 1149 (D. Ariz. 2005) (denying motion to

dismiss and holding that extortionate scheme almost identical to the Defendants# CPP constituted

a prima facie case under RICO for threatened extortion where bash site operators of Rip-Off

Report.com$who solicited and encouraged libelous postings about companies$offered to

remove the libelous postings which were allegedly created in part by the defendants, to block

future negative posts and, thereafter, tout the plaintiff company in exchange for significantly less

sums of money than at issue in this case). By negatively impacting VPI#s Internet sales of its

products, extortionate demands for moneys transmitted across state lines, as well as its receipt of

kickbacks from companies in direct competition to VPI located in various states, the conduct

complained of herein plainly affects interstate commerce.

With respect to the pattern requirement, the extortionate conduct has occurred on at least

four known occasions, with at least two companies actually succumbing to the pressure and

agreeing to pay Defendants# extortionate demands, i.e., Direct Buy and Graziosi. The acts

alleged were related to each other by virtue of common participants, a common victim industry

(Infomercial Companies), a common method of commission (the Infomercialscams website and

its CPP scheme), and the common purpose and common result of extorting or attempting to

extort Infomercial Companies of millions of dollars and enriching Defendants at the expense of

VPI and others. Therefore, the requisite prima facie elements of a RICO claim based upon

predicate acts of extortion have been met, thereby establishing VPI#s likelihood of success on the

merits.1

1 To the extent Defendants seek to rely on the Communications Decency Act, 47 U.S.C. § 230(!CDA") for immunity, such immunity is not available for, inter alia, criminal conduct. See, e.g., 47 U.S.C. § 230(e)(1) (excepting Federal criminal statutes from the scope of the CDA#s


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ii. COCCA

In many respects, COCCA, C.R.S. §§ 18-17-101, et seq., mirrors and is in fact modeled

upon RICO, and, for purposes of this Motion, based upon the foregoing discussion regarding the

RICO violation, VPI has established a likelihood of success on the merits of its COCCA claim as

well.2 Benson v. People, 703 P.2d 1274, 1276 n.1 (Colo. 1985) (providing COCCA modeled on

RICO).

iii. Lanhan Act

The Lanham Act proscribes and provides a civil remedy for, inter alia, product

disparagement. 15 U.S.C. § 1125(a) provides, in relevant part:

(1) Any person who, on or in connection with any goods or services . . . uses in commerce any word, term, name . . . or any combination thereof, . . . or any false or misleading description of fact, or false or misleading representation of fact, which$

* * *

immunity); see also Hy Cite Corp., 418 F. Supp. 2d 1142 (discussing CDA in context of certain claims but not addressing the CDA with regard to finding a prima facie civil case under RICO on facts almost identical to those presented here); NPS LLC v. StubHub, Inc., 2009 WL 995483, *13 (Mass. Super. Ct. 2009) (unreported decision) (website operators who knowingly engaged in scalping of tickets in violation of state law stripped of immunity under CDA).

2 Under COCCA, criminal impersonation can also constitute a predicate act to establish racketeering activity. C.R.S. § 18-17-103(5)(b)(IV) (citing C.R.S. § 18-5-113, which provides, in relevant part, !(1) A person commits criminal impersonation if he knowingly assumes a false or fictitious identity or capacity, and in such identity or capacity he: . . . (c) Confesses a judgment, or subscribes, verifies, publishes, acknowledges, or proves a written instrument which by law may be recorded, with the intent that the same may be delivered as true; or (d) Does an act which if done by the person falsely impersonated, might subject such person to an action or special proceeding, civil or criminal, or to liability, charge, forfeiture, or penalty; or (e) Does any other act with intent to unlawfully gain a benefit for himself or another or to injure or defraud another.").


19

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, [or] qualities . . . of his or her or another person's goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C. § 1125 (bold in original).

In this case, and as described in detail above, the Defendants are utilizing and adopting as

their own the third-party anonymous and defamatory posts appearing on their website as part of

their Smear Ad Campaign, wherein they make false and misleading representations of fact

regarding VPI, its products and policies. The Smear Ad Campaign is directed towards

disparaging VPI and in promoting VPI#s direct-competitors.

Infomercialscams is represented to consumers to be born of benevolence and altruistic

concern for their wellbeing. Defendants represent themselves to be providing impartial advice

about products based on !extensive research" when endorsing companies on their website. In

reality, however, and unbeknownst to the consumers, the Defendants# !impartial advice" is in

reality pure advertisement for the companies they endorse on their site through the Five Star

Program. Upon information and belief, the Defendants rank and endorse VPI#s competitors in

order of the size of the secret kickback they receive from such companies by directing would-be

VPI customers to the competitors# websites. In that regard, Defendants are deceiving consumers,

disparaging VPI and are, in fact, in direct competition with VPI for similar products. The Smear

Ad Campaign is a violation of the Lanham Acts# prohibition of, among other things, product

disparagement.


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iv. Deceptive trade practices under CCPA

To establish a claim under the CCPA, a party may establish, inter alia, that !in the course

of such person#s business, vocation, or occupation, such person: . . . (h) [d]isparages the goods,

services, property, or business of another by false or misleading representation of fact . . . ."

C.R.S. § 6-1-105(1)(h). By listing various proscribed acts, the CCPA did not act to limit or

otherwise preclude actions regarding deceptive trade practices recognized at common law.

C.R.S. § 6-1-105(3).

The libelous and disparaging postings on the Infomercialscams website are directly

solicited and encouraged by Defendants.3 Individuals visiting the Infomercialscams cite are

confronted with advertisements for VPI#s directly-competing products, which are ranked and

endorsed by the Defendants under their Five Star Program with a certain number of !stars" and a

personal blurb by an unknown author associated with the site which discusses the merits of the

various companies the Defendants endorse. See, e.g., Exhibit B (screenshots of

Infomercialscams.com Video Professor Complaints, dated May 16, 2009).4

3 See, e.g., Certain Approval Programs, L.L.C. v. XCentric Ventures L.L.C., 2009 WL 596582 (D. Ariz. 2009) (unpublished opinion) (providing that similar website ripoffreport.com actively solicited libelous posts and used metatags to drive up the search results for Internet search of the plaintiff and where court found sufficient facts to preclude immunity under CDA in context of motion for leave to amend pleadings to add claim for misappropriation of name or likeness under state law and where defendants claimed futility of amendment citing CDA); see also Exhibit G(screenshots of Infomercialscams.com site wherein postings are solicited, dated April 30, 2009).4 The content of the site regarding endorsements of products and disparagement of VPI and its products constitutes commercial speech. See Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 552 (5th Cir. 2001) (providing courts review (i) whether communication is advertisement, (ii) whether it refers to a specific product, and (iii) whether speaker has economic motivation for speech and noting that if all three factors are present, there is strong support for holding that it is less-protected commercial speech); Sunlight Saunas, Inc. v. Sundance Sauna, Inc., 427 F. Supp. 2d 1032, 1057-58 (D. Kan. 2006) (discussing First Amendment#s impact on Lanham Act claims


21

The individuals posting items or visiting the site are not made aware of the Defendants#

financial interest in the products being endorsed in the form of kickbacks, but rather, are led to

believe that the endorsement is a neutral expert opinion based on !extensive research" and

motivated from purely altruistic and benevolent concern for their future wellbeing. See

generally, Exhibit B. In reality, Defendants are the commission-based sales agents of the various

companies competing with VPI, and, by combining arguably protected !rants"5 with Defendants#

Five Star Program and related Smear Ad Campaign$not to mention the extortionate CPP and the

Delisting Option$Defendants are adopting the libelous postings as their own statements,

converting them to their own pecuniary use as part of their Smear Ad Campaign and are in every

sense ![d]isparag[ing] the goods, services, property, or business of another by false or misleading

representation of fact." C.R.S. § 6-1-105(1)(h).

By way of one example of their product disparagement and endorsement of competing

products in their Smear Ad Campaign, in reviewing software guides for use of eBay, and after

and noting that defendant !bash" website operator and direct competitor of plaintiff !even included direct links to competitors[]" on the bash website it created and denying summary judgment for defendant). 5 To the extent Defendants are actually composing the libelous postings appearing on the Infomercialscams website, there is no immunity under the CDA. See, e.g, 47 U.S.C. § 230(c) (!No provider . . . of a interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.") (emphasis added); see also Fair Housing Council of San Fernando Valley v. Roomates.com, LLC, 521 F.3d 1157, 1162 (9th

Cir. 2008) (en banc). Of course, actual authorship is not necessary where the site operator plays a significant enough role in the editing, presentation, content and development of a website#s content. See id. Further, portions of a site may be protected while others are not. Id. (holding open ended essay-type !additional comments" component of site not offensive to CDA while mandatory question-and-answer section involving discriminatory categories with pre-selected choice of responses in drop-down menu was violative and so stripped defendant of CDA immunity).


22

ranking VPI at the bottom of its Five Star Program with one !star," Defendants provide the

following:

Video Professor- Make Money with Ebay [sic]Infomercial [sic] is the Professors [sic] latest infomercial explaining ebay [sic]. Consumers have reported absolute horror stories about this company. I would not recommend this product based on what his customers have reported. Here is what some of his clients said on the [Infomercialscams] site:

Exhibit B at p. 4. The webpage then provides three highly inflammatory, false and defamatory

excerpts from alleged VPI customers# postings. Thereafter, the Defendants provide:

These are just a few of the over 500 complaints. Please do your research before purchasing anything from Video Professor.

Last Words:

For people wanting to make a change in their life, a good plan of action is a must! . . . A step by step [sic] course that someone else learned by trial and error can equal massive profits! If your [sic] reading this, I#m sure you already know this. That#s why I have reviewed and read all the customer reviews of these [eBay software] courses. I stand 100% behind the ebay [sic] Internet Auction Kit, [sic] in my opinion, it#s the best online marketing information available on the market. Google Money Tree is good too, but is more complicated and takes a little longer to make money with. One really cool thing as well, is that you can get the ebay [sic] Internet Auction Kit for FREE by using the webpage I have found and posted above. It#s time for you to get out of the daily grind and start making massive profits online. Best of success!!!

Exhibit B at p. 5 (bold in original, capital letters in original, underscore added to indicate internal

hyperlink). The Defendants then go on to provide not less than 27 pages of other false and

libelous rants about VPI from additional alleged former VPI customers. See id. Through the

juxtaposition of the rants, with their subjective review and endorsement of directly competing

products$for which they receive undisclosed commissions for the redirection of potential VPI

customers to the competitors# websites, including the ebay [sic] Internet Auction Kit site$the

Defendants are engaged in nothing more than old-fashioned smear ads using false and


23

misleading facts. See, e.g., Sunlight Saunas, Inc. v. Sundance Sauna, Inc., 427 F. Supp. 2d 1032

(D. Kan. 2006). Based upon the foregoing, VPI will likely succeed on the merits of the CCPA

claim.

iv. Libel per se

The elements of a claim for libel per se are: a (1) false publication; (2) made with reckless

disregard to its truth; (3) which is defamatory as a matter of law; and (4) which causes actual

damages. Denver Pub. Co. v. Bueno, 54 P.3d 893, 899 (Colo. 2002). Here, Defendants have

knowingly authored, modified and published false statements about VPI on the Infomercialscams

website. The false statements posted on the website would lead reasonable persons to think less

favorably about VPI than they would if they knew the truth. Id. The false statements are

defamatory as a matter of law because they impugn VPI#s honesty and competency in the

conduct of its business. See Bernstein v. Dunn & Bradstreet, Inc., 368 P.2d 780, 784 (Colo.

1962).

With respect to damages, VPI has lost$and will continue to lose$business from

prospective VPI customers who !Google" VPI and are presented with the Infomercialscams link

in the number three or four position for the search results. Additional damages include lost

goodwill and reputation. Therefore, a prima facie case for libel per se has been made.

Defendants will no doubt cite the Communications Decency Act, 47 U.S.C. § 230

(!CDA"), as support for the super-generic proposition that, as operators of a website, they cannot

be liable for the content thereof. See 47 U.S.C. § 230(c)(1). It is this assumed protection under

the CDA that gives rise to Defendants# Smear Ad Campaign and extortionate CPP. Defendants

saw the CDA as a panacea for success. They first created and operated a successful bash site


24

which defames businesses, and, thereafter, converted the site to a business which generates huge

revenues from falsely bashing its competitors and promotes competitors for a secret kickback.

Due to the Defendants# conduct, however, immunity under the CDA is unavailing. The

Tenth Circuit Court of Appeals has described the CDA as follows:

[The CDA] creates a federal immunity to any state law cause of action that would hold computer service providers liable for information originating with a third party. See [47 U.S.C.] § 230(e)(3) ( !No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section."). Specifically, § 230(c)(1) provides: !No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." Section 230(f)(2) defines !interactive computer service" as !any information service, system, or access software provider that provides or enables computer access by multiple users to a computer service, including specifically a service or system that provides access to the Internet. . . ." Finally, § 230(f)(3) defines !information content provider" as !any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service.

Ben Ezra, Weinstein, and Co., Inc. v. America Online Inc., 206 F.3d 980, 984-85 (10th Cir. 2000).

The CDA was enacted to prevent the reoccurrence of the holding in Stratton Oakmont, Inc. v.

Prodigy Servs. Co., 1995 WL 323710 (N.Y. Sup. Ct. 1995), where a website operator was

deemed to be a !publisher" where it voluntarily deleted certain messages from its site on the basis

of offensiveness and bad taste, and was, therefore, liable for defamatory posting it did not delete

from its site. See id.

!In passing section 230, Congress sought to spare interactive computer services th[e] grim

choice [of deciding whether to edit for some content and, thereby, become liable for all the

content of their sites as publisher, or to ignore all content and do nothing in order to avoid

potential liability as publisher] by allowing them to perform some editing on user-generated

content without thereby becoming liable for all defamatory or otherwise unlawful messages that


25

they didn#t edit or delete. In other words, Congress sought to immunize the removal of user-

generated content, not the creation of content . . . ." Fair Housing Council of San Fernando

Valley v. Roommates.com, LLC, 521 F.3d 1157, 1163 (9th Cir. 2008) (en banc) (emphasis in

original).

The Defendants# anticipated assertion that the CDA bars liability for libel (and any other

claim in the Complaint) is misguided, however, as website operators can be liable for content

they create and develop. See, e.g., id. at 1162-63 (!A website operator can be both a service

provider and a content provider: If it passively displays content that is created entirely by third

parties, then it is only a service provider with respect to that content [and so afforded protection

from liability under the CDA]. But as to content that it creates itself, or is %responsible, in whole

or in part,# for creating or developing, the website is also a content provider. Thus, a website

may be immune from liability for some of the content it displays to the public but be subject to

liability for other content.") (internal quotations retained); see also Certain Approval Programs,

L.L.C. v. XCentric Ventures L.L.C., 2009 WL 596582 (D. Ariz. 2009) (unpublished opinion);

Anthony v. Yahoo! Inc., 421 F. Supp. 2d 1257 (N.D. Cal. 2006); but cf., Ben Ezra, Weinstein, and

Co., Inc., 206 F.3d 980 (where website operator simply republished erroneous stock quotes

provided from third parties, CDA immunity applied to bar claims for defamation and negligence).

Put simply, Defendants enjoy no immunity under the CDA for libelous or illegal content

they create or for which they play a role in the development thereof. As quoted above from the

eBay portion of the Infomercialscams website, Defendants adopt as fact the false and defamatory

statements of alleged third-party posters and add significant portions of content to the website in

the form of: (1) supposedly neutral reviews of products; (2) supposedly neutral endorsements of


26

actually-competing products with their Five Star Program; (3) first-person bashes about VPI; and

(4) blatant advertising statements which are, unknown to the viewers, self-promoting by

endorsing products for which Defendants receive an undisclosed kickback/commission.

Additionally, based upon the criminal acts of Defendants, as well as the product

disparagement and related deceptive trade practices alleged, the Defendants are stripped of any

immunity to which they would otherwise be entitled under the CDA. The Defendants should be

held liable for the defamatory content of their website that they encourage and solicit$to their

direct financial benefit. See, e.g., Certain Approval Programs, L.L.C., supra (quoting Fair

Housing Council of San Fernando Valley, 521 F.3d at 1167-68 and providing ![I]mmunity for

passive conduits and the exception for co-developers must be given their proper scope and, to

that end, we interpret the term !development" as referring not merely to augmenting the content

generally, but to materially contributing to its alleged unlawfulness. In other words, a website

helps to develop unlawful content, and thus falls within the exception to [the CDA], if it

contributes materially to the alleged illegality of the conduct.") (emphasis added).

The public policy underlying the CDA was to ensure the free exchange of ideas in a then-

burgeoning and fragile Internet, without saddling website operators with the burden of constantly

policing content, while also allowing them the ability to control offensive or obscene content

without the threat of liability for acting as the speaker or publisher of content provided by third-

parties. See generally, Fair Housing Council of San Fernando Valley, supra. The immunity

provided was not absolute and was never intended to absolve website operators for liability

related to their own conduct. As it has been noted, !even if the data are supplied by third parties,

a website operator may still contribute to the content#s illegality and thus be liable as a developer.


27

FN. 31. Providing immunity every time a website uses data initially obtained from third parties

would eviscerate the exception to [the CDA] for %develop[ing]# unlawful content %in whole or in

part.#" Id. at 1171 (internal footnote and quotations retained) (citing 47 U.S.C. § 230(f)(3)); see

also id. at n.31 (disavowing a theory that an information content provider is automatically

immune as long as the data originates with another information content provider).

The Defendants# above-described conduct (as more fully set forth in the Complaint)

constitutes a violation of RICO, COCCA, the Lanham Act and the CCPA. Further, their conduct

also satisfies the elements of libel per se. Defendants cannot pervert, distort, misshape and

transform the immunity afforded under the CDA from a shield for neutral conduct, into a sword

for illegality. Accordingly, there is a substantial likelihood of success on the merits.

C. Balancing of the harms favors an injunction.

Due to the degree of continuing irreparable harm caused to VPI#s goodwill, intellectual

property, reputation and future business prospects each day by the Infomercialscams scheme, a

preliminary injunction should enter. The minimal and temporary degree of financial harm that

may be occasioned upon the Defendants by removing the Infomercialscams website and

enjoining their CPP (and all similar extortionate schemes) pending a hearing on the permanent

injunction is de minimis when compared to that harm inflicted upon VPI by denying the relief.

Moreover, a bond will be available to redress any harm caused to the Defendants if the injunction

is later determined to have been improvidently granted. Therefore, the balancing of the harms

strongly favors the issuance of an injunction.


28

D. An injunction will serve the public interest.

The Defendants are engaged in racketeering and extortion for profit, among other

malfeasance. The public interest in preventing such illegal actions would be furthered by

enjoining the Defendants from continuing to operate their schemes through the Infomercialscams

website. The conduct complained of herein could not be more adverse to the public interest, as

evidenced by its proscription in the criminal laws of this nation and state. Therefore, an

injunction to prevent such conduct is overwhelmingly in the public interest.

Undersigned is mindful of the protections afforded by the First Amendment to the United

States Constitution related to free speech. U.S. CONST. amend. I. However, and for good

reason, certain forms of criminal speech have never been afforded protection under the First

Amendment. See, e.g., Virginia v. Black, 538 U.S. 343, 358-59 (2003) (collecting cases and

categories of speech beyond protection, including !fighting words" and !true threats"). Further,

because of its underlying profit-focused purpose, commercial speech is afforded less protection

than other forms of discourse. Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 548 (5th

Cir. 2001).

Once the third-party libelous postings are adopted and utilized by the Defendants as part

of their Smear Ad Campaign for their directly-competing products and extortionate CPP, their

speech becomes criminal. Setting aside the extortionate CPP and the Delisting Option, in the best

light, their speech becomes proscribed commercial speech. The Internet is not the delicate

experiment it once was, and the CDA must be applied with reference to its express terms and its

Congressional purpose, and should not be allowed to continence illegal and proscribed first-party

commercial speech.


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CONCLUSION

Based upon the foregoing, VPI respectfully requests that the Court grant its Motion for

Preliminary Injunction (in the form of order attached thereto), and require the removal of the

Infomercialscams.com website from the Internet pending a final resolution on the merits, prevent

Defendants (and anyone acting in concert therewith) from continuing the !Consumer Protection

Program" extortion scheme (or any other acts of extortion), and for such other and further relief

as the Court deems just and proper.

Respectfully submitted this 5th day of June, 2009.

s/ Gregory C. SmithGregory C. SmithKieran A. LasaterFairfield and Woods, P.C.1700 Lincoln Street, Suite 2400Denver, CO 80203Telephone: (303) 830-2400Facsimile: (303) 830-1033

ATTORNEYS FOR PLAINTIFF


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CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and accurate copy of the foregoing was served via CM/ECF electronic filing and/or First Class Mail on the 5th day of June, 2009.

Scott T. AshbyJaburg & Wilk, P.C. 3200 North Central Avenue #2000 Phoenix, AZ 85012

Gregory E. GoldbergHolland & Hart, LLP-Denver P.O. Box 8749 555 17th Street #3200Denver, CO 80201-8749

Jersey M. GreenPreeo, Silverman, Green & Egle, PC 1401 Seventeenth Street #800 Denver, CO 80202

Randall H. MillerHolme Roberts & Owen, LLP-Denver 1700 Lincoln Street, #4100 Denver, CO 80203-4541

Stanford B. OwenStanford B. Owen, Attorney at Law 2174 East Parkway Avenue Salt lake City, UT 84109

Barry Douglas RosemanMcNamara, Roseman, Martinez & Kazmierski, LLP 1640 East 18th Avenue, #1607 Denver, CO 80218

Paul Levy Public Citizen Litigation Group1600 20th Street, N.W.Washington, D.C. 2009

____s/ Gregory C. Smith ________Gregory C. Smith


in the united states district court for the ......2009/06/05 · dean graziosi, et al., defendants....

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